Traditional IRAs allow deferral of income tax on contributions, but that deferral ends when assets are withdrawn from the account. But in recent years Congress has given individuals the option of converting a traditional IRA accounts to a Roth IRA, paying income tax on the amount rolled over into the Roth. In contrast to a traditional IRA, withdrawals of both principal and income can be made tax-free.

The attraction of Roth conversion is muted by the fact that the taxpayer has to pay tax on the lump sum that’s rolled over into the Roth. But what if you could convert a traditional IRA to a Roth IRA without paying income tax on the conversion?

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of Roth conversion in Advisor’s Journal, see Small Business Bill Extends the Roth Restructure Window (CC 10-64).

For in-depth analysis of Roth IRAs, see Advisor’s Main Library: G—Roth IRAs.

Why is This Topic Important To Wealth Managers? Today’s Blogticle discusses issues surrounding international money transfers. The information serves as a discussion point for those wealth managers with, or who are considering working with, international clients.

A report recently released by the Consumer Financial Protection Bureau (CFPB) recommends principles for maximizing consumers’ ability to receive and use exchange rate information when making remittance transfers, and examines the incentives and challenges related to using remittance data in credit scores.

Each year, consumers in the United States send tens of billions of dollars to family members, friends, businesses, and others abroad through remittance transfers – electronic transfers from U.S. senders to recipients in foreign countries. The report, mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), analyzes two subjects related to remittance transfers: the transparency and disclosure to consumers of exchange rates used in remittance transfers, and the potential for using remittance histories to enhance the credit scores of consumers.

Remittance Transfers and Exchange Rates

The Dodd-Frank Act will require remittance transfer providers to disclose, in most circumstances, the exchange rates they use and other information at the time that consumers request remittance transfers and when they pay for those transactions. The Board of Governors of the Federal Reserve System has proposed rules to implement those and other new requirements related to remittance transfers. The CFPB will assume responsibility for issuing final disclosure rules and will review comments received by the Board following the close of the comment period on July 22.

The CFPB’s report  recommends that, with respect to exchange rates, policymakers and other stakeholders observe four principles for enhancing consumers’ ability to receive and use exchange rate information:  (1) design, test, and use disclosures to maximize consumer comprehension; (2) facilitate consumers’ comparisons of remittance offerings; (3) adapt disclosures to the growing variety of channels that consumers use to initiate remittance transfers; and (4) couple information about exchange rates with an indication or estimate of the combined effects of fees and the exchange rate.

Remittance Transfers and Credit Scores

Credit files do not routinely include remittance data. If remittance histories can help assess or predict the credit risk that consumers pose to lenders, adding such data to credit files could produce a change in the credit scores of some remittance senders.

If remittance histories are predictive of credit risk, the addition of remittance data might also allow credit scores to be generated for some consumers who are otherwise unscorable.

To use remittance histories in credit scores, market participants would need to adjust their business systems and processes to adapt to and make use of the new data. If remittance histories are predictive, then any remittance-based credit scores that were developed might have particularly positive implications for some consumers born outside of the United States. These consumers send a large proportion of remittance transfers. Earlier research suggests that certain foreign-born individuals may be disproportionately likely to have credit histories that are insufficient to generate credit scores. In other cases, existing credit data may overestimate the credit risk such individuals pose to lenders. But the actual impact of any remittance-based credit score would depend on the business model, the scoring model, the data used, and the individual. In some cases, credit scores might increase; in other cases, they might remain the same or decrease.

Tomorrow’s Blogticle continues our Casual Friday series.

We invite your opinions and comments by posting them below, or by calling the Panel of Experts.

In a world where 24 hour, on demand access to millions of consumer products is available via the Internet, you may expect that modern investors thrive when given a broad spectrum of investment choices. But recent research into investor decision-making is finding that more is not better.

Investors faced with too many choices become paralyzed and make bad decisions—according to a recent study from Columbia Business School and the University of Chicago Booth School of Business. [Choice Proliferation, Simplicity Seeking, and Asset Allocation, Sheena S. Iyengara & Emir Kamenica] These results expand on previous research that found that employees are less likely to enroll in an employer retirement plan with too many investment choices.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of 401(k)s in Advisor’s Journal, see The Department of Labor Releases Final 401(k) Disclosure Rules (CC 10-82)

For in-depth analysis of 401(k) retirement plans, see Advisor’s Main Library: Section 17.5  401(k) Plans.

When: Thursday, July 21 at 2:0o pm Eastern.

We will be hosting a “how-to-use” Tax Facts Online Webinar for subscribers of Tax Facts Online. For additional information about a free trial to Tax Facts, see http://pro.nuco.com/Pages/FreeTrial.aspx.

Delivering the answers you trust and results your clients count on, Tax Facts Online puts the power of authoritative answers at your fingertips, letting you focus on delivering superior service to your clients.

Take the first step in your discovery of how Tax Facts Online can transform the way you find answers to your clients’ questions and access and share critical tax information.

Tax Facts Online delivers the same, trusted information as the time-tested Tax Facts Source Books with the benefits of robust search power, interactive calculators & tables, copy/paste capability, and daily updates as changes occur.

Subscribers to multiple Tax Facts Series of Online services, including Field Guide Online, Field Guide to Financial Planning Online, Tax Facts News, and/or ERISA Facts Online, will be able to search for information across all subscriptions services purchased from a single start page and query.

Want some free marketing material for your annuities business? Look no further than the U.S. Government Accountability Office (GAO), which recently released a report touting annuities for their ability to provide retirement income sufficiency in an increasingly uncertain environment.

The GAO recommends that retirees delay their receipt of Social Security Benefits and either draw down savings and purchase an annuity or select annuity options from their defined benefit (DB) plan instead of electing to receive their benefits in a lump sum.

According to the GAO, the shift from defined benefit pension plans to defined contribution (DC) plans like 401(k)s necessitates a heightened focus on annuities and other options for guaranteeing income during retirement . And even if workers are saving more for retirement through their DC plans, they are still at greater risk than employees with DB pensions.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of annuities in Advisor’s Journal, see How Much to Allocate to Annuities: A Critical Analysis (CC 11-109) & Drama Over the “Drawbacks” of Annuities (CC 11-62).

For in-depth analysis of the taxation of annuities, see Advisor’s Main Library: A—Amounts Received As An Annuity & B—Amounts NOT Received As Annuities.

A proposal to impose a “20/20 cap”—the lower of 20% of income or $20,000—on contributions to 401(k)s and other defined contribution plans is making rounds in Washington. Most Americans appreciate the need for Congress to pull out the stops to bridge the budget gap; but do we really want to discourage retirement savings as Social Security continues its inexorable slide toward insolvency?

The National Commission on Fiscal Responsibility and Reform—charged by President Obama with “identifying policies to improve the fiscal situation in the medium term and to achieve fiscal sustainability over the long run”—is calling for the 20/20 cap to replace the current dollar limit imposed on contributions to most accounts. The Commission’s proposal would cap aggregate contributions to defined contribution plans to the lower of $20,000 or 20% of income—employer and employee contributions combined.

The proposal also would collapse all defined contribution plans into a single investment vehicle for all employers.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of 401(k)s in Advisor’s Journal, see The Department of Labor Releases Final 401(k) Disclosure Rules (CC 10-82).

For in-depth analysis of qualified plans, see Advisor’s Main Library: Qualified Retirement Plans.

Author: George Mentz

The Securities and Exchange Commission (SEC) recently announced that J.P. Morgan Securities LLC will pay $153.6 million to settle SEC charges that it misled investors in a complex mortgage securities transaction just as the housing market was starting to plummet. Under the settlement, harmed investors will receive their money back and J.P. Morgan also agreed to improve the way it reviews and approves mortgage securities transactions.

The SEC alleges that J.P. Morgan structured and marketed a synthetic collateralized debt obligation (CDO) without informing investors that a hedge fund helped select the assets in the CDO portfolio and had a short position in more than half of those assets. As a result, the hedge fund was poised to benefit if the CDO assets it was selecting for the portfolio defaulted.

The SEC claims that J.P Morgan marketed highly-complex CDO investments to investors with promises that the mortgage assets underlying the CDO would be selected by an independent manager looking out for investor interests. That’s because the SEC states that the bank failed to tell investors that a prominent hedge fund that would financially profit from the failure of CDO portfolio assets heavily influenced the CDO portfolio selection.

According to the SEC’s complaint against J.P. Morgan filed in U.S. District Court for the Southern District of New York, the CDO known as Squared CDO 2007-1 was structured primarily with credit default swaps referencing other CDO securities whose value was tied to the U.S. residential housing market.

The SEC brought the securities fraud action relating to portfolios consisting primarily of credit default swaps (“CDS”) referencing other CDO securities whose value was tied to the United States residential housing market. The SEC claims J.P. Morgan Securities structured and marketed this $1.1 billion “CDO squared” in early 2007 when the housing market and the securities referencing it were beginning to show signs of distress.  The SEC further alleges synthetic CDO squareds were designed to, and did, result in leveraged exposure to the housing market and therefore magnified losses when the United States housing market experienced a downturn. [1]

The SEC alleges that in March and April 2007, J.P. Morgan knew it faced growing financial losses from the Squared deal as the housing market was showing signs of distress. The firm then launched a frantic global sales effort in March and April 2007 that went beyond its traditional customer base for mortgage securities. By 10 months later, the securities had lost most or all of their value.

According to the SEC’s complaint, J.P. Morgan sold approximately $150 million of so-called “mezzanine” notes of the Squared CDO’s liabilities to more than a dozen institutional investors who lost nearly their entire investment.

Without admitting or denying the allegations, J.P. Morgan consented to a final judgment that provides for a permanent injunction from violating Section 17(a)(2) and (3) of the Securities Act of 1933, and payment of $18.6 million in disgorgement, $2 million in prejudgment interest and a $133 million penalty. The settlement also requires J.P. Morgan to change how it reviews and approves offerings of certain mortgage securities. In addition, J.P. Morgan’s consent notes that it voluntarily paid $56,761,214 to certain investors in a transaction known as Tahoma CDO I. The settlement is pending court approval.

Personally I have been a long-term satisfied customer of JP Morgan Chase.  It is a great company and their stock has held up well in light of the most challenging economy in over 70 years in contrast to Bank of America and Citigroup.   The author is also enjoys personal and business banking services from several other banks and brokerage firms.   As an outsider, it may appear that JP Morgan should have received stiffer penalties, but as a lawyer, it is good to see a Bank fight for its shareholders, customers and stakeholders. In the end, it is not against the law to utilize prudence, strategy, or wisdom.

We invite your opinions and comments by posting them below, or by calling the Panel of Experts.

George Mentz, JD, MBA, CWM  -  is an international lawyer, editor, author and contributor in the areas of personal finance, securities law, and wealth management.  Prof. Mentz continues to consult  with the US Government and United Nations on issues related to careers and education. Dr. Mentz is the first person in the US to obtain quad credentialing as a lawyer, Double Accredited MBA, Juris Doctorate Degree, financial consultant certification, and qualified financial planner.  Mentz and his educational & professional development firms have worked with thousands of executives and industry workers  in over 150 countries. Dr. Mentz has personally taught over 200 business, ethics, wealth management,  and law courses at various accredited institutions, and he is the founder of the Mentz Consumer Protection, Class Action,  and Securities Law Firm http://securitieslawyers.us Mentz has served on the advisory boards of the: The African Economists Association, The Royal Society of Fellows, The Arab Academy of Banking & Finance, The China Wealth Council, The GFF Global Finance Forum in Switzerland, and the Indian Academy of Financial Management.    Mentz is the winner of several faculty awards and a meritorious award for charitable service.   Mentz has been a pioneer in promoting accredited program courses, exams and standards as a government recognized path to professional certification. www.georgementz.com

[1] See SEC v. J.P. Morgan Securities Complaint. http://sec.gov/litigation/complaints/2011/comp-pr2011-131-jpmorgan.pdf.

Treasury Secretary Tim Geithner insists that the administration needs to reach a debt limit deal by the end of this week to give Congress enough time to enact the deal into law. Without a deal, the federal government will be unable to pay its debts as of August 2 of this year.

“Default is not an option,” he said on Tuesday, July 12, at the Treasury’s Women in Finance Symposium. “Failure is not an option, and they understand that—Speaker [John] Boehner and Minority Leader [Mitch] McConnell—absolutely understand we need to move in advance of the deadline on Aug. 2nd.”

But despite Geithner’s confidence that a deal will be reached, President Obama and Congressional leaders are also working on options for keeping the government’s bills paid if a deal can’t be reached by the Treasury’s August 2 debt limit deadline. “If we are unable to come together, we think it’s extremely important that the country reassure the markets that default is not an option and reassure Social Security recipients and families of military veterans that default is not an option,” said Mitch McConnell (R-K.Y.), who took part in the talks.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage in  Advisor’s Journal, see Democrats Call Debt Limit Unconstitutional (CC 11-134), Debt Limit Standoff Boils Over (CC 11-115) and Storm Clouds over U.S. Debt (CC 11-85).

Authors: George Mentz and Benjamin Terner

The Securities and Exchange Commission (SEC) recently adopted rules that require advisers to hedge funds and other private funds to register with the SEC. The new rules also establish exemptions from SEC registration and reporting requirements for certain advisers, and reallocate regulatory responsibility.

The rules adopted by the SEC implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding investment advisers, including those that advise hedge funds.

The rules provide for a transitional exemption period so that private advisers, including hedge fund and private equity fund advisers, who are required to register should do so by March 30, 2012. However, certain rules regarding exemptions for venture capital fund and certain private fund advisers are effective July 21, 2011.

The rules come on the heels of the financial crisis as legislation to protect consumers was a Congressional prerogative. That’s because generally a significant number of individuals and institutions invest a substantial amount of assets in private funds, such as hedge funds and private equity funds.

However, until the passage of the Dodd-Frank Act, advisers managing those assets were subject to, what some consider, not enough regulatory oversight.

With the Dodd-Frank Act, Congress attempts to close the “regulatory gap” by generally extending the registration requirements under the Investment Advisers Act to the advisers of these funds. The new law also provided the SEC with the ability to require the limited number of advisers to private funds that will not have to register to file reports about their business activities.

It has been the case that for many years advisers to private funds were not required to register with the SEC because of an exemption that applies to advisers with fewer than 15 clients – an exemption that counted each fund as a client, as opposed to each investor in a fund. As a result, some advisers to hedge funds and other private funds have remained outside of the SEC’s regulatory oversight even though those advisers could be managing large sums of money for the benefit of hundreds of investors.

Nevertheless, Title IV of the Dodd-Frank Act eliminated this private adviser exemption. Consequently, many previously unregistered advisers, particularly those to hedge funds and private equity funds, will have to register with the SEC and be subject to its regulatory oversight, rules and examination. This process will come at a great expense to those now under SEC control.

This can be attributed to the fact that these advisers will now be subject to the same registration requirements, regulatory oversight, and other requirements that apply to other SEC-registered investment advisers.

The SEC is also requiring additional information from investment advisers that are required to register with the Commission. Generally these individuals provide information in their registration form that is not only used for registration purposes, but that is used by the SEC in a variety of ways “to support its mission to protect investors.”

To “enhance its ability to oversee investment advisers to private funds”, the SEC is beginning to require advisers to provide additional information about the private funds they manage. The information obtained as a result of these amendments is designed to help the SEC in fulfilling its increased responsibility for private fund advisers arising from the Dodd-Frank Act.

In conclusion, all persons are subject to federal laws and the laws of the SEC. As an example, insider trading (10 B-5) applies to all of us.  The question is whether this is duplication of regulation?  As you know, FINRA regulates their licensed advisors while the SEC also can regulate these advisors.  Also, 3^rd party custodians and administrators are generally regulated by the SEC.  An example of a 3^rd Party would be Schwab or Fidelity which both provide “Institutional & Administrative” services for a fee to hedge funds, money managers and independent RIAs.  While protecting the consumer is a great idea, having 3-4 layers of regulation over the same accounts and securities becomes somewhat cumbersome. On top of that, many states have these same advisors under their supervision and regulation.

While this all sounds confusing, this is just for securities.  When the customer or advisor deals with banking and insurance, these are supervised by other agencies at  both the state and federal levels.

While the concept of Dodd-Frank may be a good idea from a consumer protection point of view, we have to wonder if there will be too many regulators and too little producers.  In sum, this could be the best time in history to start a career in financial compliance.

We invite your opinions and comments by posting them below, or by calling the Panel of Experts.

Partners in a partnership and members of an LLC taxed as a partnership cannot have individual SEP IRAs (Simplified Employee Pension Individual Retirement Account) plans, according to the IRS.

Only employers are allowed to maintain SEP plans for their employees. Because partners are employees of the partnership for retirement plan purposes, they cannot have an individual SEP plan. If partners in a partnership wish to utilize a SEP plan, the partnership as an entity must maintain and contribute to the plan for the partners.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of IRAs in Advisor’s Journal, see Qualified Charitable Distributions from an IRA (CC 11-03) & How Are IRA Owners Investing Their Money? (CC 11-112).

For in-depth analysis of SEPs, see Advisor’s Main Library: IRAs and SEPs.